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Kuroda’s panel discussion (June 20, 1:30 pm GMT)

While the Bank of Japan (BOJ) has been slowly easing off its bond purchases, it can’t afford to be hawkish as the ECB and the Fed just yet.

See, the central bank just downgraded its inflation outlook, which further delays any tightening schedule. In fact, the head honcho recently said that “[i]t’s too early to talk about a specific method or process of normalisation and exit strategy at the moment.

Will Kuroda repeat his sentiments again this week? He’s due to speak with his other central bank buddies in Portugal on June 20, so y’all better watch out for any clues on how the BOJ plans on balancing a persistently low inflation and pressures to dial down its easy policies!

Overall risk sentiment

As you can see below, the yen has been taking cues from bond yields and overall risk appetite.

This week pay attention to how the markets react to the major central banks raising its interest rates. And if that doesn’t move high-yielding bets around, then keep close tabs on how they react to a brewing trade war between the U.S. and China.

If the world’s largest economies end up escalating their trade war efforts, then we might see more investors flock to lower-yielding currencies like the yen.

Last Week’s Price Review

After two straight weeks of broad-based yen weakness, fortune finally smiled on the yen since the yen is currently the second strongest currency of the week (as of 8 am GMT).

Overlay of Inverted JPY Pairs & US10Y Bond Yield (Black Line): 1-Hour Forex Chart
Overlay of Inverted JPY Pairs & US10Y Bond Yield (Black Line): 1-Hour Forex Chart

As usual, yen pairs were taking directional cues mainly from bond yields. The only exception is USD/JPY, but that has more to do with Greenback strength in the wake of the ECB statement.

Getting back on topic, the yen was actually the worst-performing currency for most of the week, thanks to the rise in bond yields in the runup to the FOMC statement and the Fed’s expected rate hike.

Risk sentiment also likely had an effect on the yen’s price action, though, such as when bond yields rose on Tuesday, while the yen had a mixed performance, likely because risk aversion returned during Tuesday’s morning London session.

Bond yields also surged when the Fed announced a rate hike while signaling more hikes to come. Instead of weakening further, however, the yen gained strength and began steamrolling its peers, likely because the FOMC statement caused risk aversion to return.

However, it’s also likely that the yen got boosted by safe-haven demand due to uncertainty ahead of the ECB statement and renewed fears of a potential trade war between the U.S. and China.

Speaking of the ECB statement, that caused risk appetite to make a strong comeback. However, the yen continued to steamroll its peers (except the Greenback of course) since bond yields plunged due to the ECB’s forward guidance on monetary policy, market analysts say.

And as icing on the cake, risk aversion eventually returned on Friday, thanks to trade-related jitters since the U.S. is expected to announce tariffs against China later, market analysts say.

As a side note, the BOJ announced no changes to its monetary policy on Friday, while also downgrading its inflation outlook. And while it looks like the yen got slapped lower because of the BOJ statement, it’s likely that yen pairs were still taking directional cues from bond yields.